Germany, Britain and France agree to bank levy

Britain, France and Germany have agreed to introduce levies on banks to make them help pay for global recovery, the European heavyweights said in a joint statement Tuesday.

Germany, Britain and France agree to bank levy
Photo: DPA

“The governments of France, the United Kingdom and Germany propose to introduce bank levies based on banks’ balance sheets,” they said, as Britain’s finance minister announced a banking tax from next January.

The action is to that ensure banks “make a fair and substantial contribution towards paying for any burdens associated with government interventions to repair the banking system or fund resolution in a financial crisis,” it added.

“The United Kingdom bank tax is announced today,” the statement said, referring to Osborne’s emergency budget, unveiled after Prime Minister David Cameron’s Conservatives won elections last month.

It noted that Germany announced a framework for a national bank levy at the end of March “and will present draft legislation in the Cabinet in summer.”

France “will present the details of its bank tax in the coming budget,” due later this year, it added.

“All three levies will aim to ensure that banks make a fair contribution to reflect the risks they pose to the financial system and wider economy, and to encourage banks to adjust their balance sheets to reduce this risk,” it said.

“The specific design of each may differ to reflect our different domestic circumstances and tax systems, but the level of the levy will take into consideration the need to ensure a level playing field.”

The statement added that British, French and German leaders “look forward to discussing these proposals further with international partners” at a Group of 20 summit in Canada this weekend.

Berlin downplays rift with US

Ahead of the G20 gathering, German Chancellor Angela Merkel’s government was working hard to dispel the impression of a row with Washington.

A government source in Berlin said on Tuesday that the United States was not applying any pressure on Germany on economic policy

US President Barack Obama and Merkel were “largely in agreement” on how best to move beyond the crisis during a pre-G20 phone call Monday, added the source, who did not wish to be named.

There was “no pressure” from Washington on the subject of economic policy, the source added, and the pair agreed on a “differentiated exit” from emergency stimulus measures put in place at the height of the financial turmoil.

Last week, Obama sent a letter to other world leaders in which he said he was “concerned by weak private sector demand and continued heavy reliance on exports by some countries with already large external surpluses.”

He added that governments must “learn from the consequential mistakes of the past when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession.”

Many viewed this as an attack on Germany, which has announced a huge austerity package worth at least €80 billion ($98 billion) between next year and 2014 and is the world’s second biggest exporter after China.

However, the German source dismissed reports of a transatlantic spat.

“The Obama letter showed fewer differences (between Berlin and Washington) than have been reported,” the sources said, adding: “We are in agreement.”

On Monday, Merkel herself hit back at the perceived criticism, saying the package was “not about a radical savings programme” and stressing the measures would foster sustainable growth by investing in areas such as education.

“I think that when we explain this, no one will be able to say that we are not doing enough for growth,” she said.

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The Euro celebrates its 20th anniversary

The euro on Saturday marked 20 years since people began to use the single European currency, overcoming initial doubts, price concerns and a debt crisis to spread across the region.

The Euro celebrates its 20th anniversary
The Euro is projected onto the walls of the European Central Bank in Brussels. Photo: Daniel Rolund/AFP

European Commission chief Ursula von der Leyen called the euro “a true symbol for the strength of Europe” while European Central Bank President Christine Lagarde described it as “a beacon of stability and solidity around the world”.

Euro banknotes and coins came into circulation in 12 countries on January 1, 2002, greeted by a mix of enthusiasm and scepticism from citizens who had to trade in their Deutsche marks, French francs, pesetas and liras.

The euro is now used by 340 million people in 19 nations, from Ireland to Germany to Slovakia. Bulgaria, Croatia and Romania are next in line to join the eurozone — though people are divided over the benefits of abandoning their national currencies.

European Council President Charles Michel argued it was necessary to leverage the euro to back up the EU’s goals of fighting climate change and leading on digital innovation. He added that it was “vital” work on a banking union and a capital markets
union be completed.

The idea of creating the euro first emerged in the 1970s as a way to deepen European integration, make trade simpler between member nations and give the continent a currency to compete with the mighty US dollar.

Officials credit the euro with helping Europe avoid economic catastrophe during the coronavirus pandemic.

“Clearly, Europe and the euro have become inseparable,” Lagarde wrote in a blog post. “For young Europeans… it must be almost impossible to imagine Europe without it.”

In the euro’s initial days, consumers were concerned it caused prices to rise as countries converted to the new currency. Though some products — such as coffee at cafes — slightly increased as businesses rounded up their conversions, official statistics have shown that the euro has brought more stable inflation.

Dearer goods have not increased in price, and even dropped in some cases. Nevertheless, the belief that the euro has made everything more expensive persists.

New look

The red, blue and orange banknotes were designed to look the same everywhere, with illustrations of generic Gothic, Romanesque and Renaissance architecture to ensure no country was represented over the others.

In December, the ECB said the bills were ready for a makeover, announcing a design and consultation process with help from the public. A decision is expected in 2024.

“After 20 years, it’s time to review the look of our banknotes to make them more relatable to Europeans of all ages and backgrounds,” Lagarde said.

Euro banknotes are “here to stay”, she said, although the ECB is also considering creating a digital euro in step with other central banks around the globe.

While the dollar still reigns supreme across the globe, the euro is now the world’s second most-used currency, accounting for 20 percent of global foreign exchange reserves compared to 60 percent for the US greenback.

Von der Leyen, in a video statement, said: “We are the biggest player in the world trade and nearly half of this trade takes place in euros.”

‘Valuable lessons’

The eurozone faced an existential threat a decade ago when it was rocked by a debt crisis that began in Greece and spread to other countries. Greece, Ireland, Portugal, Spain and Cyprus were saved through bailouts in return for austerity measures, and the euro stepped back from the brink.

Members of the Eurogroup of finance ministers said in a joint article they learned “valuable lessons” from that experience that enabled their euro-using nations to swiftly respond to fall-out from the coronavirus pandemic.

As the Covid crisis savaged economies, EU countries rolled out huge stimulus programmes while the ECB deployed a huge bond-buying scheme to keep borrowing costs low.

Yanis Varoufakis, now leader of the DiEM 25 party who resigned as Greek finance minister during the debt crisis, remains a sharp critic of the euro. Varoufakis told the Democracy in Europe Movement 25 website that the euro may seem to make sense in calm periods because borrowing costs are lower and there are no exchange rates.

But retaining a nation’s currency is like “automobile assurance,” he said, as people do not know its value until there is a road accident. In fact, he charged, the euro increases the risk of having an accident.